Digital Transformations in the Asset Management Industry
Digital transformation is certainly reshaping many industries, in particular, financial services. The future of money is now being driven by customer and user experience, artificial intelligence and machine learning. Following our last article on AI’s contribution to the shipping industry, we look at some of the key digital transformations in investment. Be it the global recession, a drop in real estate values, or a plunge/uncertainty in the economy, one thing that has been constant and ever-growing is the diversity and opportunities the investment industry continues to offer.
While the investment industry has been growing and predicted to continue, there are several other considerations which we are certain to see and experience in the foreseeable future. A recent PWC report on showed that assets under management continue to increase year on year, despite considerable shifts in the investor base, pressures and new risks.
It is predicted that the volume of investable assets under management will shoot up from $60tn in 2017 to over $100tn by 202, according to PWC’s ‘Brave New World’ report. At a CAGR of nearly 6%, assets under management in major growth economies are set to rocket, driven by government schemes to move consumers towards individualised and self driven retirement plans, the rise of high net worth individuals from growing and emerging markets, as well as the growth of sovereign wealth funds, particularly in emerging economies.
That said, the cost of regulation and KYC will remain on the increase, squeezing margins and cost pressures. This is due to government scrutiny, the need to provide transparency and documentation, as well as continued investment in data and processes, to reduce the cost base of operating funds, as well as automate and document processes for regulatory purposes.
What’s more, the blockchain, artificial intelligence, data mining, cryptocurrency, and automated data entry have changed the very nature of the investment industry and they are set to radically disrupt the working of the superannuation funds in the future, let’s say 15 years from now.
The big question that arises here is how will these trends shape up and what are people looking for in terms of best investment options?
Some of the major research organizations are of the opinion that the major shift in the field of investments will be a direct result of the changes in the mega trends such as technology, society, environmental changes, and of course the demographics (these are outlined in a short summary infographic below). New business models will emerge as we move from generations to generations which play with the evolving needs of the investors.
The traditional methods and the models of the investment are constantly changing and becoming more innovative. This innovation will lead to client service models giving out a more holistic view of the investments made by the people. They will need to do a better work at not only explaining the propositions but also providing detailed and aggregated information about the investments done by the consumer. Companies driving innovation in investment and trading include: Nutmeg, Wealthify and Moneyfarm.
An investor 15 years from now is bound to be much more different from the investor in the present year. They will be much more mobile and globally diversified. They will be connected to many communities through the help of social media, and other modes of networking. As compared to today’s customers, the investors of the future will be a far more diverse demographic.
We see the trend of the past 25-35 years, the investment industry has been male-dominated, but as we move forward this will not be the case. Also, the developing economies will be dominating the market of investors.
This shift in the paradigm will bring about a major change in the trends of this industry. This shift will create a set of options that will be across a much wider demographic. The ageing population and the current scenarios have already set of the wheels in motion that will bring an opportunity for long-term savings and propositions of investments.
The increase in the wealth and the growth in the population of the developing and the emerging countries represent a fair share of revenues and capital for this industry.
It is important to build trust between the customers and the service providers. That trust takes time to build and this trust can only be built through the ways of simplicity and transparency. Delivering on the customer service promise is also one of the factors that help in building the trust amongst the customer and the service providers.
It is also important to understand that while the current investment options and the industry caters to the silver economy i.e. the ageing population, the future of the investment industry is held in the hands of the millennial; people under the age of 30. The values of the millennial are set to become the norms that will drive this industry in the foreseeable future.
A paradigm shift led by millennials?
The fact cannot be disputed that the millennials are the largest generation in history and they are set to mature and become the largest investors in the future. Among a lot of things, investments are of a grave importance to the young generations. They are ready to challenge and disrupt the traditional models of the investments and come up with platforms that can offer the best investment options which will be much more digitalized and can redefine consumption.
The onset of such investment options in the future will give rise to technological advancements that will help the investors and the customers deal in transparency and a manner that will be more proactive and innovative. This rapid but steady growth will mean that the investments operations will have to be more swift and simple at the back-end to ensure that the front-end delivers on the customer service promises.
One thing that is for sure that even though the change in the paradigm will be disruptive and challenging, the millennials are ready to take over this industry and turn into something completely different and take it on a route that will change the nature of the industry, drastically.
They will ensure that not only the industry offers innovative investment operations, but also ensure that the pool of the resources, sources, and the capital comes from the developing and emerging economies. This will give such economies to mark their presence and be a part of the change is expected to hit the market in the next 12-15 years.
What are the key predictions predicted to drive the industry over the next years?
- Asset and investment management will go to centre-stage, as governments and individuals demand more control over their money (rather than through pension funds)
- Money will be drawn to be redistributed globally, as money moves to LATAM, Eastern European and South Asian economies
- Transparency of asset management fees will be the norm, globally
- Alternative investments will become mainstream e.g. ETFs, robo-trading
Mega Trends Infographic